by Will Ashworth | May 28, 2013 12:42 pm
The Dow Jones Industrial Average staged a late rally last Friday to avoid a three-day losing streak. While it still declined fractionally last week, the Dow has now gone more than 100 days without three consecutive losing trading periods, making professional prognosticators nervous. The S&P 500 shed a bit more — 1.07% — but still is up more than 15% year-to-date.
Where the markets are headed in the second half of the year is anyone’s guess, but InvestorPlace contributors still have a few bullish opinions. Here are my ETF alternatives for these potential stock gems:
Private equity firms have been busy this year taking their investments public so they can realize profits on those bets. One such private equity investor is Blackstone Group (BX), which has generated $17 billion in realizations over the past year from 115 transactions, as Tom Taulli points out May 22. Blackstone is looking to reload, placing new bets on all sorts of companies operating in diverse industries around the world. With a 2014 P/E of 9, Taulli figures investors are getting a fair price for its shares.
The obvious choice for an ETF alternative here is the PowerShares Global Listed Private Equity Portfolio (PSP), which invests in private equity firms like Blackstone, KKR & Co. (KKR) and many others. However, I like to zig when others zag … so I’ll go with the First Trust Value Line 100 ETF (FVL), which invests in the 100 most timely stock purchases out of a group of 1,700. All 100 of these stocks are expected to outperform the universe of 1,700 stocks over the next six to 12 months based on its proprietary calculations. Rebalanced quarterly at an equal weight, Blackstone’s weighting as of May 24 was 1.07%, which tells us it’s up nicely since the end of March.
Be aware, however, that the ETF has significantly underperformed the Russell 3000 Index since its inception in June 2003.
The chemical industry is in the midst of a building binge here in America. Aaron Levitt believes firms involved in building the roughly 100 new petrochemical and plastics projects underway or in development will benefit tremendously from the country’s surge in natural gas production. Levitt sees Chicago Bridge & Iron (CBI), Fluor (FLR) and KBR (KBR) doing very well in the next five to 10 years. Of the three, Fluor is up the least year-to-date, so I’m going to find an ETF alternative for it.
First Trust is the ETF provider of choice once again with the First Trust ISE Global Engineering and Construction Index Fund (FLM), an ETF that invests in companies that receive 70% of their revenue from large infrastructure projects like Eastman Chemical‘s (EMN) $71 billion capital expenditure by the year 2020. Fluor is the third-largest holding with a weighting of 3.36% behind Jacobs Engineering Group (JEC) at 3.60% and CBI at 7.32%. You might not get the exposure to the U.S. that you’d like, but you’ll certainly get exposure to all three companies Levitt recommends in his article. The big downside — its net expense ratio is 0.7% annually.
The huge success of Iron Man 3 is just the start for Disney’s (DIS) Marvel Studios division. At least that’s the opinion of Lawrence Meyers, who also happens to be a Disney shareholder. Meyers figures that Marvel has so much content to bring to the big screen and through other media that Disney’s $4.2 billion spent to acquire the brand back in 2009 is already a huge win for the entertainment conglomerate. In fact, it’s one of the main reasons Meyers owns Disney’s stock in the first place.
Only two weeks ago, I recommended investors buy the Consumer Discretionary SPDR (XLY) as a proxy for Disney stock. I’m back at the Disney table again, only this time I’m going to recommend the iShares Morningstar Large-Cap Growth ETF (JKE), which also has Disney in its top 10 holdings but at a weighting of just 2.7%. Inexpensive at a net expense ratio of 0.25%, the JKE focuses on large-cap growth stocks. While the XLY is more focused on strong consumer brands like Disney, the JKE leans toward technology, with 29.4% of the portfolio invested in stocks like Apple (AAPL) and Google (GOOG). It’s a nice way to gain exposure to Disney and technology at the same time.
On May 23, Marc Bastow was hedging his bets with Yahoo (YHOO), a stock that he not only owns, but has already made significant money on in just five months. Marc’s looking at $33 as his fish-or-cut-bait moment, and he believes the company will hit that price within the next year if Tumblr proceeds in an orderly manner and CEO Marissa Mayer continues to push into the mobile arena. Long-term he’s not nearly as certain, which makes an ETF alternative a good half-measure.
Because Marc isn’t entirely sold on the company, I want to select something that’s focused less on Yahoo and more on technology. An interesting fund to do that is the First Trust Nasdaq-100 Equal Weighted Index Fund (QQEW), which invests in all 100 of the stocks in the NASDAQ-100 Index, each with an initial weighting of 1%. Rebalanced quarterly, Yahoo’s weighting is 1.12%, meaning it will be pruned by 12 basis points at the end of June to get it back to its original 1%. I like equal-weighted funds because they take profits off the table and reallocate to the underperformers, but not everyone does.
Dan Burrows correctly points out in his May 24 article about consultants that Accenture (ACN) is by far the biggest, and the only one that most people could even name if asked to. Burrows gives us three alternatives to Accenture, with all of them up at least 25% year-to-date. But can they keep it up? Given all three are experiencing annual growth significantly higher than the S&P 500 as a whole, it’s hard not to like their chances.
Unfortunately, there aren’t any options that I know of to capture all three. However, the SPDR S&P Software & Services ETF (XSW) gets you both Booz Allen Hamilton (BAH) at 0.94% and Genpact (G) at 0.69%. That might not seem like much, but the XSW is an equal-weighted fund, so the top holding is just 1.05% while the lowest is 0.41%. If you believe in the power of the Internet, this is a good fund to gain exposure to the online industry.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
Source URL: http://investorplace.com/2013/05/disney-sure-but-diversify-etf-alternatives-for-hot-stock-picks/
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